Commodities. Oil and Gold Daily - January 24, 2018

> Oil rally loses steam after API reports crude inventory build; EIA data eyed. During the first half of the day yesterday, the front-month Brent contract was trading within a narrow $69.00-69.50/bbl range. It then started to advance right after trading in North America began, eventually settling at $69.96/bbl, $0.93/bbl above the previous settlement. During its ascent, Brent managed to briefly break above the key $70/bbl resistance level. Oil prices were being driven higher by risk-on sentiment in global markets, a dip in the dollar and a brighter outlook for global economic growth (implying higher demand for oil; see yesterday's report). Prices were also underpinned by Japan's PMI, which rose to a multi-year high in January (we note that Japanese oil imports ranged from 2.8-3.5 mln bpd last year). Yesterday was also the tenth consecutive day that Brent traded sideways within a $68-70/bbl range, implying that the price rally (Brent gained around $7/bbl in December) has stalled. Both Bloomberg and Reuters have recently been very keen to highlight increasing investor demand for put options that allow for Brent to be sold at $68-70/bbl. This implies that market players are actively seeking protection against a sharp price correction.
After the front-month Brent contract settled yesterday, the benchmark continued to surge, nearly reaching $70.20/bbl before the weekly API data release. After the data came out, Brent dipped $0.4/bbl, falling below $70/bbl, where it continues to trade this morning. US crude inventories were expected to shrink again but instead expanded by 4.8 mln bbl to 416.2 mln bbl in the week ending January 19 (the EIA estimated US crude stocks at 412.6 mln bbl in last week's data). The build was driven by a 1 mln bpd w-o-w increase in imports and 0.42 mln bpd decrease in refinery runs. Gasoline stocks were up by 4.1 mln bbl, while distillates were down by 1.3 mln bbl. We think today's EIA data, due at 18:30 Moscow time, will be bearish overall, showing a strong increase of around 3 mln bbl in crude inventories, another uptick in US oil production and a further swelling in gasoline stockpiles. As a result, we expect Brent to end the day below $69/bbl.
> Gold surges as dollar dips against yen and euro. Gold traded at $1,332-1,338/oz for most of yesterday before breaking above this range overnight and falling just short of pushing above $1,344/oz this morning. Support came from a new wave of dollar weakening against other major currencies. This morning, the DXY slid below 90 for the first time since late 2014. The dollar continued to be pressured by a strengthening yen amid speculation that the BoJ could start to move away from its massive stimulus program; this despite the BoJ's governor having pledged yesterday to stay the course. After seven consecutive sessions of EUR/USD trading within 1.22-1.23, the euro climbed out of this corridor early today on a surge in EU consumer confidence to a 17-year high in January. Demand for gold also increased after Donald Trump imposed import tariffs on washing machines and solar panels yesterday, moves that could undermine global trade and dampen economic growth. Today, investors will eye eurozone PMI (12:00 Moscow time), which is likely to be strong and pressure the dollar, thus driving gold even higher. We expect gold to surge close to $1,350/oz today.